But I'd also had real world experience with what the business does. So I wasn't afraid of knocking on doors and facing those situations so I can work with process servers and refine the processes based on challenges I'd faced myself.
Acquiring Minds
You’ve Been Served: Buying a $1.3m Process-Serving Company
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Yeah, absolutely. That's great. Just I wanted to summarize something you'd said earlier, which is so valuable. Clayton Smith that you talked to in your EO group. said to pitch seller financing, the value to the seller of a seller financing deal, I think you said you named two things.
First, that they'll get more money over time, which is the whole point of lending. You get that interest payment on top. So the final sum to you, while it's amortized over years, is a larger sum to the seller.
And then also the deferring that payment over years or spreading that payment out over years means that the tax burden is not as high because they're not reporting effectively all of it in a single year.
Right. And you have to take into consideration the time value of that money as well. So I did a full analysis for Patrick that showed him how much money he would be getting out of this as a sum of the amortization plus interest payments and also the time value of the deferred tax payments that he was making. So in this case, I just put a 7% discount rate on it because that's the interest rate I…
And showed him that, look, the value of this tax, these deferred tax payments and the interest that you're getting is way higher than you would even get from this other deal that's on the table for you and the million dollars that I'd be giving you after your taxes.
Okay, walk us through that a little bit slower, Raj. So you're giving him $600,000 over seven years. Let's take away the interest only piece of that for the moment to simplify.
$600,000 over, let's actually say six years to make it super round. $100,000 a year. Walk us through what you walked him through.
So... I mean, I'd have to pull up an Excel sheet to do all the math again. But essentially, if he's getting 7% interest, at the end of the deal, he'd be walking away with, I think it was $700,000 to $800,000 after all the interest payments. There's also a tax component to it.
If he got paid $600,000, a third of it would go into taxes. So he'd be out $200,000. Yeah. And so what I showed him was rather than paying that $200,000 upfront, you'd be splitting that over six years.
And I did a time value analysis of him being able to keep that money over six years and then apply the discount rate to it to show him that there's time value in that money as well, because he gets to hold onto it and put it elsewhere. Yeah. And in this case, it was lending it to me. That's why I did that analysis with a 7% discount rate.
Great. Yeah. So not only does he not have to pay that money, it's generating income for him in the interest payments from you.
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